CSFB Closes the Deal to Buy SPS

Credit Suisse First Boston has sealed its deal to get into the mortgage servicing business, agreeing to buy SPS Holdings for approximately $144.4 million in mid-August.

In addition, SPS said that it may pay up to $39.9 million more for mortgage loans that are currently serviced by SPS on behalf of third parties. In a separate announcement, the PMI Group said that it had agreed to indemnify CSFB for "certain liabilities relating to SPS's operations," a caveat that could reduce PMI's future cash payments from the sale. PMI said it expects to receive approximately $102 million at the closing.

However, PMI said that the expected proceeds from the sale exceed its carrying value for SPS, so the company does not expect to recognize impairment related to the deal.

CSFB said the transaction is likely to close in the fourth quarter.

Select Portfolio Servicing already services mortgage loans underwritten by CSFB for private-label mortgage backed securities. CSFB said it plans to integrate SPS into its MBS business. It also said that SPS will continue to offer third-party servicing to other companies.

CSFB is a major MBS underwriter, with $36.5 billion in volume through the first half of this year. In the second quarter, CSFB was the nation's seventh-biggest underwriter of mortgage-backed securities, accounting for 5.6% of MBS deals in the quarter.

"SPS will help CSFB grow its residential mortgage businesses and cut costs by capturing servicing fees now paid to outside vendors," said Andrew Kimura, co-head of structured products trading at CSFB, in a news release. "Owning an in-house servicer complements our residential mortgage growth strategy as we originate, securitize and invest in mortgages."

While not exactly getting jilted at the altar, Select Portfolio Servicing's owners, including majority stakeholder The PMI Group, had to wait longer than expected to find out if a deal could be closed. SPS and CSFB signed a letter of intent back in January, setting a July 31 deadline for reaching an acquisition deal. But twice the two firms pushed that deadline back by a week to negotiate final details.

Under terms of the January agreement, CSFB and its affiliate, DLJ Mortgage Capital, have already been buying servicing rights from SPS.

At the end of the first quarter, SPS's servicing portfolio stood at just over $21 billion.

PMI, which owns approximately 65% of SPS, has long been eager to sell the firm. In the fourth quarter of last year, PMI realized a capital loss of $13.3 million relating to its stake in what was then still a troubled servicer.

Under the previous name of Fairbanks Capital, the company had come under intense regulatory and media scrutiny for allegedly heavy handed and unfair collection and customer service practices. Since that time, Fairbanks has agreed in a settlement with federal regulators to cease certain practices, and it has invested heavily to improve its customer service.

SPS has loan servicing facilities in its headquarters at Salt Lake City, as well as in Jacksonville, Fla.